State ownership of AIB 'impossible to avoid'
Published 01/10/2010 | 05:00
THE State could soon own more than 90pc of AIB after Finance Minister Brian Lenihan yesterday announced plans to effectively nationalise Ireland's second biggest bank.
The shock announcement was triggered by revelations that AIB is facing massively higher losses on the loans it is due to transfer to Nama.
AIB was originally pencilling in losses of about 30pc on the loans it is sending to Nama, but the Financial Regulator now believes the bank could face losses of 60pc on the remainder of its Nama portfolio.
Those higher losses prompted the regulator to up AIB's capital target from €7.4bn to €10.4bn.
The bank will not be able to raise the extra €3bn from the market, so it will have to be put in by the Government.
That could see the State owning 92.5pc of AIB if the bank can't get any private investment, analysts said last night, adding that it was now "impossible" for AIB to avoid majority state ownership.
Shares in the embattled bank fell more than 30pc in morning trading. "We were expecting something on AIB but we didn't expect anything like this," one analyst said, describing the stock markets' "shock" at yesterday's announcement.
AIB is now preparing to launch a €5.4bn equity raising in November, pricing the shares at 50c a piece. The State's National Pension Reserve Fund (NPRF) has agreed to pick up any shares not bought by private investors.
The NPRF will make up the shortfall by putting in €3.7bn of fresh state cash and converting its €1.7bn so-called "preference shares" into ordinary shares in the bank.
AIB's shares traded below 50c for most of yesterday. "Given where the share price has gone, I'd expect there isn't going to be huge private interest," one market source said.
Central Bank Governor Patrick Honohan, however, stressed that comparing the NPRF's investment in AIB with Anglo's bailout was like comparing "apples with oranges" since the AIB money could be recovered over time.